Presently, the process of documenting a trading operation between a buyer and a seller is manually intensive and error prone. Typically, a trading operation begins with a buyer wanting to purchase goods from a seller and requesting a price quote for the goods. The buyer and seller negotiate the terms of the trade resulting in the price quote as well as the other terms and conditions the two parties agree upon as being the basis of the agreement. The buyer then issues a purchase order (PO) to the seller reflecting the agreed upon price quote and the terms and conditions. The PO specifies the essential components of the transaction such as the type, amount and price of the goods as well as other details such as the time and place of delivery. Although not always required, the next step in the traditional process is the issuance of a Letter of Credit (L/C) by a bank. The L/C is generated from and typically incorporates all of the agreed upon terms and conditions and all of the PO information. The L/C is essentially a guarantee of payment by the bank that issued the L/C (the issuing bank) if the seller complies with all of the terms and conditions of the L/C. Specifically, as banks deal in documents and not goods, the seller must present a complete set of documents that strictly comply with the L/C in order for the issuing bank to honor the L/C. The L/C is issued by the issuing bank based upon the credit worthiness of the buyer.
The PO and/or L/C is transferred to the seller who is then in a position to manufacture (or supply) and ship the goods requested by the buyer. Internally, upon receipt of the PO and/or L/C, the seller creates a Sales Order in order to document the sale. The Sales Order reflects the requirements of the PO and/or L/C. If the seller is a manufacturer, the Sales Order is used to generate a manufacturing specification sheet from which the actual goods are manufactured. If the seller is a distributor the Sales Order is used to generate a warehouse pick slip that is used to pick the goods to be shipped. Alternatively, the seller can use the PO and/or L/C from the buyer to generate its own PO that is issued to the actual manufacturer of the goods. Once the manufacturing process is sufficiently complete, the seller contacts a shipper/freight forwarder to arrange for the shipment of the goods. The seller sends the shipper shipping instructions from which the shipper generates a Bill of Lading and customs documents (if required).
When the seller has the goods available for shipment (either through manufacturing, picking from the warehouse or acquisition from the manufacturer) the seller generates all of the documents required by the PO and/or L/C. These documents typically include an invoice for the goods, packing slip, certificate of analysis and/or origin. Additionally, the seller at this point provides for the transportation of the goods, procures shipping insurance and files the required trade documentation with both the origin and destination government authorities. Once the goods have been shipped, all of the trade documents required by the PO and/or L/C are presented for negotiation to the issuing bank (or another negotiation bank acting on the issuing bank's behalf).
As is readily seen from the above description, the process required to document a trading operation involves many parties generating many documents from the same redundant purchase information from the buyer that is entered in the systems of the bank, the seller and other trading partners, and is therefore susceptible to error and gross inefficiencies. These errors in the documentation lead to delays throughout the process including delays in the shipment of the goods. Any such errors result in the delay of receipt of the goods by the buyer and delay of receipt of payment by the seller. It is clear that all of the parties to the transaction would benefit from a system and method which reduces the number of errors in the documentation.
Since this documentation process is not part of an exporter's or an importer's core business (i.e., buying and selling goods) many exporters and importers are now outsourcing the documentation and tracking operations to third parties. Furthermore, since there is a certain level of risk exposure in the letter of credit collection process, many customers are looking to banks to assist them in their letter of credit fund collection.